10 Questions to Ask Yourself When Testing a Business Idea

You've got a business idea you're jazzed about, but aren't sure if it's feasible. What you need to do is test the concept to see how it stands up to a series of rigorous questions.

"You are always testing," says Andre Marquis, Executive Director of the Lester Center for Entrepreneurship at Haas School of Business at the University of California, Berkeley. "What you start with is rarely what you end up with."

Where to begin? Here are 10 key questions to help you evaluate your business idea:

1. What is my customer profile?
Maybe your product or service idea seems like just the right solution for you, but can you identify a clear customer base beyond yourself? Ask what your customer's biggest pains are and how your product might help resolve them, says Alexander Osterwalder, co-author of Business Model Generation (Wiley, 2010) and founder of The Business Model Foundry, which provides digital tools to help develop business ideas. When David Dodge got the idea to start a tutoring business, he used Internet surveys to develop a psychographic analysis of his core customer. "I tried to dig deep and find more," he says. "Understanding and segmenting your market is very important." In 2005, he founded Sure Prep Learning in Scottsdale, Ariz., focusing his marketing on worried and competitive parents. Today, the business has more than 800 tutors.

2. What am I replacing?
Whatever your idea is, someone out there is buying something else in its place, says Jim Pulcrano, executive director of IMD, the top-rated Swiss business school. Ask yourself what makes your product compelling enough to replace what's already in the marketplace. This doesn't necessarily have to be limited to products that have a similar purpose as yours, Pulcrano says. You could also look at your target customers' spending habits, he says, and consider how you could get them to buy your product instead of something else they currently purchase.

3. How do I demonstrate this idea to others?
Make your idea as tangible as possible, says Steven Stralser, clinical professor of entrepreneurship at Thunderbird School of Global Management in Glendale, Ariz. That might mean developing drawings or a working prototype. By figuring out how you can easily represent your idea to others, you'll start to see how much footing it has, Stralser says. "The ability to show it to other people becomes very critical."

4. Who will I need on my team?
In the early stages, you'll need to figure out whom you can turn to for honest and informed advice about your ideas, Stralser says. And soon, you'll also need to think about whose brainpower you want on your side—whether in product development, marketing, IT or another function. Find a way to approach such people to gauge their interest in getting involved.

5. What resources do I need?
How can you actually make this idea happen? That requires asking what resources you'll need, from factories to computers to office space, Osterwalder says. Make a list of all the key assets and figure out whether you can obtain them before you invest a lot of time and money in testing and product development.

6. How long will my purchasing cycle be?
You want to know the purchase cycle for your product or service so you can estimate your upfront cash needs. With a longer purchasing cycle, you'll need more money on the front end before you start bringing in revenue. If you are selling medical technology to a hospital, for instance, that transaction might take 18 months to complete. In contrast, a phone app can be purchased immediately.

7. What's a reasonable sales forecast?
You want to analyze the actual operation of the business as much as possible to come up with a solid sales forecast, Stralser says. For example, if you want to open a restaurant, don't just base your revenue forecast on annual restaurant sales in your city. For a more specific estimate, consider the size and seating capacity of your proposed restaurant, the expected average customer bill, and the hours of operation.

8. How much growth potential does my idea offer?
Think about how big you want your business to be and figure out if your idea can meet your expectations. For example, if you are writing software, building simulations or making something by hand, you should realize that you may not grow as fast as if you're making something that can be mass produced. "Are you selling your time, which is finite, or are you selling a product, which you can sell a million of?" Marquis says. "A lot of times it's not obvious to people."

9. Do I possess the necessary skills?
Having an idea and making it happen are two very different things. Be honest in assessing whether you're qualified to turn your idea into a business, Pulcrano says. If an idea requires highly technical skills or business experience that you lack, will you be able to find someone who can fill those gaps?

10. Can I see myself doing this for the next two years?
Coming up with an idea can be exciting, but are you willing to dedicate your life to it for at least the next two years? Do you have support from family, friends and mentors, and are you willing to make the necessary sacrifices? Dodge decides whether to pursue an idea partly based on how excited he and his team are about it. "You have to look at opportunity cost and realize any new opportunity is going to take a tremendous amount of time and energy," he says.